Opening a credit card account can be a good financial decision for many people. However, if used irresponsibly, it can also be one of the worst. Credit cards are necessary for the vast majority of people — but as with all powerful things, they also require great responsibility.
Let’s take a look at the most important things to consider before opening a credit card.
Get to Know Credit Basics
Credit allows you to purchase something immediately and pay for it later. In the same way as other loans, credit cards offer flexibility, but they also carry consequences if they are not repaid under the terms.
In contrast to debit cards and mobile payment apps, credit cards allow users to temporarily use money that is not their own.
In addition, it’s common for someone’s credit limit (how much they could spend on their card) to exceed their availability, or how much money they actually have. The double-sided nature of buying on credit makes it an attractive option.
You’ll Need to Start Small
Initially, getting approved for credit cards with great rewards, hefty sign-up bonuses, and long interest-free periods may be more challenging for you. Only applicants with excellent credit and long credit histories who meet specific income requirements can apply for these best-in-class products.
You should start small with your first credit card, using one designed for people with no or limited credit histories. However, many of these cards don’t charge an annual fee and offer decent rewards. Consider these options:
- Credit cards that are geared toward students.
- Cards requiring a cash deposit or secured credit cards.
- A credit card targeted at people with fair or average credit.
- An online or bank-issued credit card that you have prequalified for.
Keep Your Credit Card Debt Manageable
Credit cards should only be used for purchases you can pay off in full. You’re making your first mistake if you put something on your credit card that you can’t afford. Your budget for the next month will be impacted when you have to pay for that item, and it is easy to fall further and further behind.
If you want to keep your identity and bank account safe while also getting rewards from your credit card, treat your card as a convenience rather than a means of buying things you can’t afford. Cash is king, so only purchase what you want if you have that amount lying around.
Paying off the balance on a credit card in full when the bill arrives is the best way to maintain control over it. The goal is to prevent interest charges from accruing on your account. You’ll have trouble paying your entire bill if you buy things you can’t afford, and that’s when the problems begin. Credit card interest rates are usually very high.
The First Credit Card Can Make or Break You
Getting your first credit card is a great way to build your credit. The opposite can also happen, though, if you are not careful. Your actions will determine how your financial future takes shape.
You can find out how your credit score is calculated by checking your credit report with your issuer every month. Credit bureaus assemble credit records from which your credit score is calculated. In addition to your payment history, the report shows how much of your available credit you have used. Late payments and maxing your card out can be disastrous for your score, so try and avoid that.
Make sure your credit card activity helps your credit score as much as possible by keeping your credit limit below your capacity to pay every month. It is also a good idea to keep track of your credit score and how it changes over time.